Brave New World of Glass
The global float glass industry at the start of 2014 is one much changed from 10 years ago. During the worldwide recession and its aftermath, production capacity plummeted as manufacturers shuttered glass plants and idled float lines. The industry consolidated, and investments in areas like solar glass led to deep losses. However, while mature markets suffered, emerging markets began to accelerate. Today, as the global industry—and individual float glass manufacturers—look to adjust to this new world of glass, challenges and opportunities are emerging.
The steady rise in global demand for flat glass came to a halt in 2007, when the worldwide Great Recession began to take hold. After growing at a pace of 5 percent annually, global flat glass demand began to slip in 2008 before contracting 3.6 percent in 2009, according to a report from NSG/Pilkington. The extent of decline was much more severe in North America and Europe, where the decrease in demand was accompanied by even steeper declines in capacity utilization.
In North America, float shipments fell about 12 percent in 2008 alone, marking the lowest levels since 1995, according to Ducker Worldwide. Flat glass demand, which reached 5 million tons in 2005, plunged to slightly less than 3 million tons in 2010. And as a result, capacity utilization dropped 20 percent from 2008 to 2010, according to an NSG/Pilkington report.
Companies quickly responded by closing plants and idling lines. In North America in 2005, 36 float plants were in operation. Today, there are 30. Since 2005, seven float lines have been shut down, and another six have been idled. Capacity in North America contracted by about 25 percent, estimates Bowie Neumayer, vice president, sales and marketing, for Cardinal Glass Industries, www.cardinalcorp.com, which operates five float plants in the United States. “The global percentage [of contraction] may be larger,” he says.
“The North American market has seen its deepest and longest crisis in recent history,” says Serge Martin, vice president of marketing for AGC Glass Company North America. “The major surprise in this case has been the duration of the crisis and how slow the recovery is coming.”
Some companies report the downturn hit the European market even harder. According to the NSG/Pilkington report, demand for flat glass fell an estimated 20 percent from 2007 to 2010. Capacity utilization, which neared 100 percent prior to the recession, fell to about 85 percent levels by 2011 and 2012.
“The hardest hit region for Guardian has been Europe, predominantly western, central and southern Europe. Europe has historically had economic setbacks in the glass industry but typically rebounded in 12 to 18 months,” says Scott Thomsen, former president of Guardian Industries Global Flat Glass Group.
An estimated 12 float plants were shuttered in Europe during the downturn, out of about 60 total, says Jürgen Servais, a member of the executive board of Glas Trösch, parent of glassmaker Euroglas, which operates four float plants in Europe.
Perhaps the most prominent closures in the region were those from NSG Group, which shuttered four European glass plants between 2008 and fourth-quarter 2013, and stopped production on an additional two lines, most recently at its St. Helens, Cowley Hill, location. The shutdown of the St. Helens, Cowley Hill, line was necessary to “match the requirements of its customers,” officials said. The move will “right-size capacity to further reduce the Group’s fixed cost base, and deliver the profitability improvement of the Group’s European architectural business,” they reported.
North America and Europe
After the extended downturn, companies report the North American market is beginning to grow, with activity in the construction and automotive segments. “The North American market is the mature market that shows the most potential for growth for ,” Martin says.
“In North America, it appears we are finally starting to see a turnaround in the residential new construction sector and continued strength in the remodel and replacement sector,” Thomsen agrees.
The European market remains slow, however, companies report. Of the four major flat glass markets—architectural, auto, solar and interior—two are experiencing continued losses, says Euroglas’ Servais. “The solar and the automotive markets are in a very bad situation in Europe,” he says. “The automotive glass market is down for the third year in a row, and we have seen a total breakdown in the solar market.”
The interior glass market is showing improvement, while the exterior architectural glass market is mixed throughout the region, Servais says. “The architectural market is divided between north and south Europe. The economic situation in Spain is bad; Portugal is not performing well; and France is potentially in the worst situation,” he says. “The UK is flat; Scandinavia is stable; Germany is doing well; Switzerland is doing well.”
“In Europe, economic difficulties continued to depress construction and refurbishment activity,” NSG Group officials said in the company’s 2014 Q1 Consolidated Financial Results. “[Architectural glass] volumes remain at historically low levels. Automotive original equipment markets continue to be extremely challenging, with the UK being the only market to show any meaningful signs of growth. Light vehicle sales in the European Union are now at their lowest levels for 20 years.”
The one bright spot for global glass companies throughout the downturn has been growth in emerging markets. “Geographically, we [Guardian] are experiencing the most growth in Latin America, India and the Asia Pacific,” says Thomsen.
“Emerging countries can also show significant short-term fluctuations, but the underlying long-term growth trend is sustained,” AGC’s Martin says. “From a global perspective, the most significant changes are specific to the continued growth of emerging markets, hence our new plant opening in Brazil.” The new AGC plant in Guaratinguetá, São Paulo State in Brazil opened in October 2013. AGC now operates plants in all four of the BRIC markets (Brazil, Russia, India and China), Martin says.
NSG Group and Saint-Gobain have joined forces to expand in South America with two joint ventures, including a new float plant near Sao Paulo, Brazil, and a new float line near Buenos Aires in Argentina. The new line in Argentina, coming online this year, will “support market growth and enhance service in Uruguay, Paraguay and Bolivia,” NSG officials said in a release.
Russia and Eastern Europe have also been major areas of growth and investment in recent years. In 2013, Saint-Gobain entered into a joint venture with Sisecam’s Trakya Cam for an automotive glass manufacturing facility in the Republic of Tatarstan, Russia. In late 2012, Guardian opened a float plant in Rostov, Russia. In 2011, NSG Group merged with STiS Group of Companies to expand float production in Ramenskoye, Russia.
In Eastern Europe, Euroglas, in conjunction with Press-Glas SA, opened a plant in Ujazd, Poland in 2009. In 2011, Sisecam opened its fifth plant in Bulgaria.
“In the new economy—countries like Russia, Ukraine, Poland—there are big possibilities in the future,” Euroglas’ Servais says. “These are huge markets for glass manufacturers. … I would say that Russia and the Ukraine will be the main goals for the next five to 10 years.”
Companies have also been looking to Asia, the Middle East and Africa for emerging opportunities. Saint-Gobain has made investments in India, and has operations in Chennai, Gujarat and Rajasthan. The float manufacturer’s investments in India include the 2011 acquisition of Sezal Glass Ltd.’s float glass business. In 2010, Saint-Gobain also joined forces with Trakya Cam, a Sisecam subsidiary, to open the largest flat glass factory in Egypt.
Faces of the industry
Despite the economic turmoil of the last five to 10 years, the companies in the industry have remained essentially unchanged. Consolidation has occurred at the regional level, but the primary global glassmakers have held steady.
The worldwide glass market has four main global players, with regional players operating in their local markets. The major players in the market—globally and regionally—are well-established, mature companies, many with histories going back more than 100 years. Saint-Gobain, the oldest of the four primary global float glass leaders, opened its doors in 1665; Pilkington started operations in 1826, and is now part of NSG Group, which was founded in 1918. Asahi Glass Co. touts a history beginning in 1907, while Guardian Industries is the newcomer of the bunch, established in 1932.
“Glass manufacturing and fabrication is intensely competitive all over the world,” says Thomsen. “While there are four float glass manufacturers with a presence on at least four continents— Guardian, Asahi, Nippon, and Saint Gobain—there are many producers who have multiple assets within a given region … and those who have one to two float lines and focus heavily on local markets.”
The last 10 years have seen the disappearance of several companies, mainly through acquisitions. This is especially true in Europe, according to Euroglas’ Servais. “Consolidation is the biggest change over the last five years, and the main reason is the economy,” he says. “Five years ago in Europe, there were nine players; now we’re down to six.”
Scheuten Group’s solar division filed for insolvency in 2012, and its German facilities were acquired by Chinese Aikosolar. Scheuten’s stake in the “Moustier4” joint-venture float line in Belgium was purchased by AGC in 2013. The market downturn also hit Interpane: in 2012, AGC purchased 51 percent of the company. Additionally, Italy’s Sangalli Group announced last year it was entering a partnership with Glasswall Group, which provided finances to completely restructure the company.
In North America, Carlex Glass America acquired the two float plant operations of Zeledyne (formerly Visteon) in Nashville and Lebanon, Tenn., in 2011.
Several sources say they expect the make-up of the industry to change even more in the near future. “I would expect to see some changes in the industry landscape over the next three to five years,” says AGC’s Martin. “We have seen a number of private equity investments made in North America and other regions in both the automotive and architectural glass industry. As those investors evaluate their shortand long-term strategies, we would expect to see some potential changes happen with some companies. Also, many companies seem to be refining their strategic focus to strengthen their core businesses, so we could see some changes in the industry occur from those types of decisions.”
The Chinese glass industry continues to have an increasing impact on the global glass market in terms of supply and demand. According to the Freedonia Group, demand for flat glass in China is expected to grow 8.2 percent annually to reach 3.4 billion square meters by 2016.
“China is a world to its own, with roughly 50 percent of the global capacity,” says Thomsen.
While no Chinese glass companies have yet emerged as global float glass leaders, several are poised to do so in the near future, sources say. “There are several well run companies in China who have the capabilities to extend their reach,” Thomsen says.
AGC’s Martin agrees. “We expect some foreign glass companies, most notably from China, to continue to look to grow their presence in North America and other regions of the world,” he says.
Companies report they are not seeing competition from China in terms of raw float glass exports. This is, in large part, due to longer lead times and transportation challenges. “In Europe, jumbo sizes are standard in the float market,” says Servais, and companies are in many ways protected from overseas competition because of these large sizes. “Chinese companies are not able to transport these huge sizes. … If it can’t fit into a container, it can’t be shipped.”
Chinese competition, however, has been fierce in terms of standard glass products such as solar panels, shower doors, mirrors and picture frames. “The biggest impact China has had on the global glass markets is the export of high volume, standard fabricated glass products,” Thomsen says. “Historically, Chinese manufacturers have had a meaningful cost advantage in products and processes that are labor intensive, and have shown the propensity to mass scale production to gain synergies.” Custom products, or those that demand short lead times, are more immune to Chinese competition, he says.
“Finished products coming from China have greatly reduced glass demand in certain segments,” Cardinal’s Neumayer agrees. “Picture frames, furniture, framed mirrors are all being imported into the States. Twenty years ago, these products were made in North America and demanded a large amount of glass. The picture frame industry alone used to absorb at least one float plant in the United States 20 years ago. Now the number is probably 25 percent. The mirror industry demanded three float lines and is now 30 percent of one float line.”
Glass manufacturers with heavy solar investments have been hit particularly hard by competition from China, sources say. “The rise and fall of the solar industry [has been] probably the biggest change [in the global glass market in the past five years],” Neumayer says. “The market for U.S. manufactured solar panels was pretty much destroyed by lowpriced imports from China.”
Richard Beuke, vice president, Flat Glass, PPG Industries, agrees. “A key development over the past five years was the sudden rise and fall of the solar market. It created a lot of unrealized expectations in our industry, and I don’t think the final chapter has yet been written,” he says.
Chinese companies are able to export finished, standard-size solar panels at a much lower cost than glass companies in mature markets. “In the solar glass market, 90 percent or more of the glass is coming from China. The prices are very cheap, and nobody can compete,” Servais says.
The troubles at Scheuten Solar, and losses at NSG, which heavily invested in solar, reflect these challenges, sources say. Officials from NSG attributed losses during FY2013 in part to “turmoil in the solar energy markets,” in the Group’s annual report.
China’s influence will only continue to grow on the global glass market, sources say. “The effect of Chinese glass manufacturing on regions outside China also varies with the GDP growth of China,” Thomsen says. “If domestic demand is strong, glass products will be required to service local needs; if demand weakens in China, then exports rise and effects are felt elsewhere.”
AGC’s Martin agrees. “Over time, China will catch up with mature markets, and consume more of its own capacity and have a stronger focus on quality.”
To prepare for this greater emergence of competition, several glass companies are making investments in China. “AGC has specifically chosen to participate in the local Chinese market through targeted added-value product initiatives,” Martin says.
Saint-Gobain has also invested heavily in China. The company created a presence in the country in 1985, and currently operates 54 subsidiaries and employs about 10,000 people in China. The company operates several float plants in the country, and officials restarted a float line in Xuzhou in 2010 to meet local demand.
Hints of recovery in mature markets, matched with quickening growth in emerging markets, have companies reporting more positive expectations in the near and long term. However, as market conditions improve worldwide, glassmakers will be faced with several challenges, including meeting demand. The loss of production capacity, notably in North America and Europe, is expected to create supply challenges as demand increases. World demand for flat glass is projected to rise 7.1 percent per year through 2016 to 9.2 billion square meters, according to the Freedonia Group.
“Our industry needs to be planning for better days,” says PPG’s Beuke. “Today, we’re one year closer to those better days … which is only going to exacerbate the growing tension between glass supply and glass demand as markets improve.”
“The market is coming back, and by 2017 or 2018 we will have to add capacity,” Servais says, of the European market. “When the economy starts up in Europe, the question becomes, how quickly can you start up the float plants again? If you have a line that was down for six to eight years, it’s almost cheaper to rebuild than to start it up again.”
“Considering the capacity that has disappeared during the last few years and the consolidation of businesses within our industry at all levels, it makes sense that some supply issues have occurred,” says AGC’s Martin. “This will be an ongoing issue in 2014. … We experienced a recession that lasted longer than anticipated, and cut deeper than most were prepared to manage. For those who survived, and who are running healthier businesses today, reductions were made in production capacity, inventory warehoused, overheads, etc.”
Martin says that AGC began making preparations last year for growing demand. “We began making changes to ramp up, as we expected sales growth to occur,” he says. “AGC has been proactive, and has managed to have capacity available through the restart of its second line in Church Hill, Tenn.”
Cardinal is also ready for an increase in demand, Neumayer says. “We have all of our lines running with one repair scheduled. We are well prepared for a healthy return to the residential market,” he says.
However, Neumayer notes that the huge costs of restarting lines or building new plants could stall capacity increases. “A new float line today will cost more than $150 million, [and] the revenue needed to justify the investment just isn’t there. I believe there will be supply issues within the next year or two if the market continues to grow and capacity is not brought on line,” he says.
Improving market conditions will present challenges that extend well beyond capacity concerns, Beuke emphasizes. The industry needs to plan ahead, “not just from a capacity standpoint, but in how we continue to invest in our products and manufacturing processes to meet demands that architects, building owners and building code writers are making on us.”
Finding qualified labor is also a growing concern, Beuke says. “As an industry and as individual companies, we need to work harder to attract top-flight scientists, engineers and production personnel to our industry. That challenge is magnified because many other heavy manufacturing-intensive industries like ours are seeking to do the same thing. We need to get college students and young engineers excited about all the things our industry is doing to promote sustainability and a healthier planet,” he says.
For a mature industry, the global glass business has witnessed major changes in the last decade, and will only see more in the next. But according to Thomsen, “after experiencing prolonged economic downturns in North America and Europe, there are no challenges, only opportunities.”
Martin advises, however, that companies not forget recent challenges as conditions improve. “The biggest risk is that a more favorable market situation for the glassmaking industry would make us forget what we learned during the difficult times and that we must reinvent ourselves for the longterm sustainability and growth of our business,” he says.